The Commonwealth Bank of Australia Ltd (ASX: CBA) released its FY20 results on Wednesday 12 August. The report reflects the impact of COVID-19 on the Australian economy but a resilient business and strong operational performance. All things considered, could the Commonwealth Bank share price be a buy for long-term investors?
FY20 Results
On the morning of the announcement, the Commonwealth Bank share price jumped as much as 2% before finishing the day in the red. The share price has shed more than 5% from the recent peak last Wednesday to its current price of $70.98. The company's earnings were supported by a fundamentally strong performing business but impacted by higher loan impairment expenses due to COVID-19. While its statutory NPAT increased 12.4% on FY19, the banking behemoth's cash NPAT fell by 11.3%. Its dividend was also slashed by 31% on FY19 to $2.98 per share. CommBank's dividend payout ratio of 49.9% was in line with APRA's suggestion to cap dividend payouts to 50% of earnings.
Despite a sturdy result, the announcement highlights some inherent risks in home and business lending, which have likely been reflected in the falling Commonwealth Bank share price late last week. In the context of home lending, approximately 8% of accounts have been deferred, representing 135,000 deferrals and a total of $48 billion in balances. Of the deferrals, 25% were making some repayments and 14% had 12 months or more worth of payments already made in advance. There were however, 14% receiving JobSeeker and 58% which came from joint accounts with only one borrower on JobSeeker.
CommBank's business lending has active deferrals which represent 15% of balances or $14 billion. 30% have continued to make repayments in full as at 30 June. However approximately 23% of deferred accounts are classified as higher risk and approximately 30% are receiving JobKeeper.
Should you buy the Commonwealth Bank share price?
I believe the Commonwealth Bank share price is stuck between a rock and a hard place. It has delivered a fair result given the challenges presented by COVID-19 and record low interest rates. Its dividend payment represents a solid yield of around 4% based on the current Commonwealth Bank share price. This is despite the cut and APRA's suggested dividend cap. In fact, its revised dividend yield is very reasonable compared to the likes of some ASX 200 companies in the real estate investment trust (REIT) and industrial sectors.
The full impact of home and business lending deferrals may take some time to surface given factors such as government support schemes and recent 'second wave' concerns. All things considered, I believe the Commonwealth Bank share price is fairly valued, but there are better opportunities out there for dividend or growth plays.